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29 April, 18:52

What is the yield to maturity, to the nearest percent, for the following bond: current price is $928, coupon rate is 10 percent, $1,000 par value, interest paid annually, fifteen years to maturity

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  1. 29 April, 19:53
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    Yield to maturity 10.87%

    Explanation:

    Yield to maturity is the annual rate of return that an investor receives if a bond bond is held until the maturity.

    Face value = F = $1,000

    Coupon payment = $1,000 x 10% = $100

    Selling price = P = $928

    Number of payment = n = 15 year

    The coupon rate can be calculated using following formula

    Yield to maturity = [ $100 + ($1,000 - $928) / 15 ] / [ ($1,000 + $928) / 2 ]

    Yield to maturity = $104.8 / $964

    Yield to maturity = 0.1087 = 10.87%
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